Articles

Betting the (Wes) Farm

At the time of writing – barring an act of God or a self inflicted mortal injury – Wesfarmers appear to be the new owners in waiting of the Coles Group. Whether winning this race turns out to be the retail equivalent of “the holy grail” or a “poison chalice” remains to be seen.

There are critical aspects to the success or otherwise of this pursuit by Wesfarmers however.

First and foremost, Wesfarmers is swallowing a retail business that – on the most flattering of measures – is at least 5 times the size of its current combined retail businesses. While no one doubts the skills of the operators of Bunnings compared to their competitors in the hardware retail sector, if this scale of purchase were being made by anyone else in any other sector it would be described as “betting the farm”.

Clearly the strategic intent of Wesfarmers must be to transform themselves into a pure play retail investment vehicle and there would be few, if any, future opportunities such as this come along in the near to medium term.

However, you cannot step away from the fact that this is a BIG bet.

The Wesfarmers team are confident and committed. Appropriate, but also admirable traits when biting off and digesting a mouthful of this proportion.

Nevertheless, the vast majority of the business they will acquire is more complex and has one over-riding factor not yet discussed at any great length in other media – Cultural alignment to customer.

Wesfarmers is a very masculine business used to delivering a masculine offer.

Coles Supermarkets and Target in particular are feminine domains with foot-traffic well over 65% female. Both K-Mart and OfficeWorks are also dominated by female foot traffic, while being less feminine in their appeal.

The real upside in The Coles Group isn’t unleashed by the rational elements of capital and operational efficiency – although there is much to be gained there – but through better customer experience and segmentation strategies that deepen the customer experience. For women.

Culture is a powerful thing. And if “Men Are From Mars And Women Are From Venus” is applicable to retail, then an overtly masculine culture trying to come to terms with the subtleties of an overtly feminine retail business will be like trying to get sump oil and rose water to mix.

An investment vehicle in transition. A retail acquisition more than five times their current size. A much more complex retail business. A cultural mis-match. Wow, this is going to be fun to watch. And if the bet pays off, not only Wesfarmers but also every stakeholder to the retail industry wins big!